Liquidity Ratio Definition

* Liquidity ratios are used to measure a firm’s short term obligations.
* Liquidity ratio helps in comparing short term obligations with the short term resources, which are available to meet the obligations.
* Liquidity ratios show the relationship of a firm’s cash and other current assets with its current liabilities.
* To measure short term obligations, liquidity ratios are used.
* These ratios help determine the ability of a firm to meet its current liabilities through its current/quick assets.
* Better liquidity position means more power to repay current liabilities without the need to dispose of long-lived assets and borrow money.